"You can’t look at a glass half full or empty if it’s overflowing…" Kanye West

The UK markets paused for breath in June, digesting their recent rallies from the pits of the coronavirus crisis in March, despite fears of a second-wave. In the UK, more cyclical names led the way with miners, construction firms, and banks all performing strongly.

Share prices in Consumer businesses (both staple and discretionary) all paused for thought as firm after firm announced imminent job cuts, widespread closures of stores and, in extreme cases, cessation of business entirely. Rather like the 90s classic computer game, Minesweeper, investors needed to pick their businesses carefully and mark the suspect one so they wouldn’t blow up in their faces. Both EasyJet and Airbus announced severe job cuts, with the passenger carrier intending to close hubs in Newcastle, Stansted and Southend, whilst reducing staff numbers by up to a third.

John Lewis, a mainstay of UK retail, announced drastic job cuts and expected store closures. The commuters’ choice for a weak coffee and a stale croissant also disappeared this week as Upper Crust cut thousands of jobs on the basis that their usual customers will be working from home for the foreseeable future. And, closest to home, TM Lewin announced they were closing all 600 stores and will operate solely online in future. Hopefully, this will herald the return of the ‘4 shirts for £100’ but margins may still be too tight for that, even with less capital intensity. 

We are not here to suggest whether the recovery will be V shaped, W shaped or L shaped, but what we are doing is investing in high quality businesses, which are prudently managed and have strong fundamentals. Within the retail sector, our holdings will always be at the top of their fields regardless of market conditions. We believe customer demand will remain stronger at your high-street Greggs over Café Ritazza for your coffee and yum yum or JD Sports over Sports Direct for your early morning Zoom call joggers and fresh kicks.

For these consumer businesses to survive, grow and outpace their peers they need to be agile and willing to make creative decisions, no matter how left-field they appear to be... Last week, who would have thought that US stalwart, GAP would be on the cusp of being the biggest-trending apparel brand globally? But the announcement of their upcoming 2021 collaboration with Kanye West caused a 40% leap in their share price, adding $1 billion to their market capitalisation. Kanye’s recent Yeezy collaboration with Adidas was a huge commercial success, and is sure to bring in a bumper pay day for GAP. So kudos to the management team for thinking out of the box and bringing Kanye to the table. As the man, the artist, the legend, said himself; ‘You can’t look at a glass half full or empty if it’s overflowing…’ Let’s see if his mantra will extend to bricks and mortar retail.

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